Election battle lines drawn on super

The political choice is supposed to be clearer now that both
Julia Gillard
and
Tony Abbott
have explained their big picture view to jump start the parliamentary year. Don’t feel alone if you are hazy on the details of how this will all work – or add up.

The whole idea for now is to blur the hard edges of policy into fuzzy generalities. Thus the Prime Minister cites what she calls the government’s five pillars – improving skills, building a culture of national innovation, investing in infrastructure, improving regulation and leveraging our proximity and knowledge of Asia. Clap, clap. Who could possibly disagree? It’s how best to do this that requires real policy choices.

Abbott focuses on a country where the government spends less, taxes less and encourages citizens to do more as the best way to build a strong, productive economy. Details to come. For the moment, the main commitments are the abolition of the carbon tax and mining tax and, somehow, the boats of asylum seekers. It’s hardly a policy blueprint, more a statement of faith. Trust indeed.

Business and investors must resign themselves to policy no-man’s land until at least the May budget. Oh sure, there will be plenty of ministerial announcements and position papers and gatherings in Canberra, but these will be primarily be about selling imagery. Look, that Abbott really can be a positive, happy fellow. See, Gillard is actually a strong leader with a plan beyond her own survival.

But beneath the rhetoric – and the massive political distractions like the formal charging of ex-Labor MP
Craig Thomson
– party strategies for this year are taking a more distinct shape.

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Labor will promote itself as the defender of ordinary families struggling with the bills but needing a smart government willing to invest big in areas like education to shape the future. (See how easy it is to sound visionary). The Liberals will be focused on the ability of people to make their own choices as long as government gets out of their way and lowers taxes. Abbott keeps emphasising how it is impossible for a government to keep delivering new services on borrowed money.

But a budget under pressure will inevitably require these generalities to be translated into big spending cuts or an abrupt end to certain tax concessions. That’s where some of the sharpest politics will start to occur. Two examples of this are at bookends of the age scale.

The Opposition Leader was willing to reiterate Thursday, for example; that a Liberal government would still dump the school kids’ bonus, describing it as a cash splash that had nothing to do with education. True enough, but it does have a lot to do with Labor’s calculations about how to protect their marginal seats.

The government is also confident it can win the intensifying argument over the tax treatment of superannuation. But this will be highly sensitive for anyone over the age of 50.

The Australian Financial Review’s revelations about the government’s plans to end the tax free status of withdrawals for those with high super balances, for example, have created uproar in the financial services industry. It is not yet clear exactly where the threshold for taxing of withdrawals will be set, but it will definitely affect balances under $1 million.

Clearly if the threshold is set nearer to $700,000 or $800,000, many more people will be directly affected. Far more will fear it.

According to the Tax Office, about 110,000 members of self managed super funds had account balances of over $1 million last financial year. There would be more people in retail and industry funds though it’s difficult to establish how many.

That will inevitably mean a lot of financial advisers will now have new jobs figuring out ways for their clients to stay below any threshold. But it also makes it higher risk politics if the government tries to save the sort of money it wants. Assuming a 5 per cent rate of return, for example, self funded retirees would need $1 million if they want to withdraw $50,000 a year, or $800,000 for $40,000 a year. The government won’t be shedding tears. But a lot of retirees will be furious at the prospect of paying tax on that, particularly when those receiving a government pension also receive valuable extra benefits and concessions beyond the basic pension payment of $18,500.

The government’s argument is that the $32 billion year a cost of concessions is growing unsustainably. But most of the cost is for the majority with much lower balances and for employer contributions. The opposition says it won’t make any more changes to super apart from reinstating the 15 per cent tax on contributions for lower income earners – battle lines visible through the political hot air.
jhewett@afr.com.au